British Pound Futures Volatility Forecast (14/03/2011)

The market dropped quite significantly over the last 2 weeks. Specifically, British Pound futures went from 162.5 to 160.8 highlighting a sharp appreciation of the US dollar. However, it must be said that the 162.5 area was probably the highest level ever achieved by pound futures over the last 5 months, hence, this area is a strong resistance point.

The actual volatility is around 0.62% (9.8% annualised) and it would appear that a further up movement of the TGARCH curve is about to happen. On the other hand, the actual volatility measurement is very close to the mean reverting point, which is around 0.64% (10.1% in annual terms), and this could simply mean that the down move is almost over and that British Pound futures will start rising again.

The upcoming week could see a wide sideways movement because prices could first drop to 160 before jumping back up to 161.8 – 162 by the end of the week. As a consequence, the volatility should achieve the “boiling point” and then mean revert towards the 0.55% area (8.7% in annual terms).

The staff of HyperVolatility is going to place trades intra-day and specifically we will look for short opportunities over the first 2 days of the week but we will revert our positions as soon as we notice early signs of recovery (read dropping daily volatility)

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